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Carclo’s full year results to March 2025 confirm an Adj. PBT of £4.9m (FY24: £1.0m) as it moved from ‘recovery’ to growth. This is materially ahead of our forecast of £2.4m and consequently we raise our FY26E Adj. PBT from £5.2m to £6.5m representing YoY growth of 32% and a further expansion in the operating margin to 8.7%. The decline in net debt (inc. leases) from £29.5m to £19.2m had already been disclosed and emphasised the improvements in working capital and lower capex spend. The outlook statement is also bullish with contract renewals offering good visibility. With Carclo having confirmed new banking facilities and a favourable outcome on its pension deficit earlier in the year, the prelims are the final piece of the jigsaw demonstrating Carclo has moved on from the past. We argue it continues to offer substantial upside and reiterate our BUY recommendation and upgrade our target price from 63p to 75p
Carclo plc Carclo plc
Carclo’s full year FY25 trading update confirms a material beat on net debt (inc. leases) with it coming in at £19.3m - substantially better than our estimate of £27m. This has been achieved largely through better working capital management and lower capex. There is no change to our Adj. PBT forecast of £2.4m for FY25 (FY24: £1.0m), nor to our FY26 Adj. PBT forecast of £5.2m. With the recently announced new banking facilities and the substantial lowering of the pension deficit along with a revised funding plan, the investment case for Carclo has improved immensely. This has not been reflected in the share price. We re-iterate our BUY recommendation and TP of 63p.
Carclo plc
This is the news we have been waiting for with Carclo announcing new banking facilities of £36m (against a net debt forecast of £15.9m at March 2025 - split £21.1m debt, and cash £5.3m), and a lower actuarial pension deficit, down from £82.8m to £64.5m. As our target price is dependent upon the value of the pension deficit, the lower value allows us to increase our target price to 63p from 47p. We re-iterate our BUY recommendation with the new facilities allowing Carclo to invest in the business and the ability to look forward with confidence for the first time in several years as the material uncertainty over liquidity is removed. The shares trade on a CY25E PE rating of 5x.
The FY25 interim results confirm continued improvements in operational efficiency with the EBIT margin expanding to 5.6% (1HFY24: 3.3%) and YoY Adj. EBIT growth of 54%. Furthermore, there has been an acceleration in the reduction of net debt (inc. leases) to £25.2m compared to £29.4m at March 2024. For now, we will be keeping our full year expectation for Adj. PBT unchanged at £2.4m (FY24: £1.0m). We reiterate our BUY recommendation with the company now trading on a CY25E PE rating of 8x. We also increase our target price from 30p to 47p reflecting an 8.0x EBITDA multiple on FY26E earnings (rather than FY25), which does not take into account the anticipated lower actuarial pension deficit which will be disclosed in 2025.
FY24 prelims are ahead of our recently upgraded forecasts with Adj. PBT coming in at £1.0m against a breakeven expectation. This enabled net debt (inc. leases) to decline from £34.4m to £29.4m against an expectation of £30.4m. For now, we leave our FY25 and FY26 Adj. PBT forecasts unchanged at £2.4m and £5.2m respectively but lower our net debt estimate. We also upgrade our target price from 25p to 30p and maintain our BUY recommendation as while Carclo is up c150% YTD, its recovery has still a long way to run.
The year-end trading update for FY24 has led us to upgrade our Adj. PBT forecasts for both FY24 and FY25 with Carclo trading above previous expectations. It has clearly benefited from the restructuring program which commenced in 2022 that has also enabled it to be covenant compliant. We now expect the Adj. PBT in FY24 to be break-even, up from a loss of £1.3m and for Adj. PBT in FY25 to be £2.4m, up from £1 4m. This also has a beneficial impact on net debt with the FY25 position now expected to be £29.7m against our previous expectation of £31.6m (inc. IFRS16 leases). We re-iterate our BUY recommendation and target price of 25p. Restructuring still on-going suggesting further room for improvement. The European operations had already been re-structured in 2022/3 though Carclo has only recently announced a similar restructuring in its US operations in February this year. It confirmed it is closing down its New Hampshire and Arizona facilities and transferring assets to its existing site in Pennsylvania. This process in the US has yet to complete thus we are hopeful of further operational improvements in FY25. Numerous initiatives now starting to bear fruit. Carclo has had a torrid time over the last few years reporting declining revenues and profitability but this update confirms the changes the (relatively) new management team have put in place are working. The focus on margin improvement, exiting unprofitable and non-core activities and restructuring the work processes in both Europe and in the US are now starting to have their desired effect as evidenced by the improved outlook for the EBIT margin which we expect to increase from 3.8% in FY24 to 5.3% in FY25. EBIT margin still at historic lows. While the EBIT margin is improving (it hit a low of 0.9% in FY19), it is still some way behind the 7.4% reported in FY18. Our assumptions reveal that even a small improvement in the margin will have a material impact on the EBIT e.g. in FY25, while we are expecting an EBIT margin of 5.3% and EBIT of £7.0m, should the EBIT margin be 6.5% it would represent an expected EBIT of £8.5m in FY25, i.e. a material improvement from our base case assumption which is still behind the historical high. Established a good base for share price recovery. Since May 2021, the shares have declined by c90% with the company giving cause for concern over a numbers of issues ranging from the cancellation of a major contract, pension deficit financing, rising input costs, higher interest expenses and covenant arrangements. These issues have either been dealt with or continue to ease allowing our forecasts to be substantially de-risked. With this mind and on the back of our upgrades, we would expect the share price to start reversing its recent decline.
Consistent with its previous announcements, Carclo has re-structured its US operations such that all activities will now be carried out at one site. It has confirmed it is in the process of closing down its New Hampshire and Arizona facilities and transferring assets to its existing site in Pennsylvania. This largely completes the company-wide re-structuring review with changes already introduced in The UK and Europe in 2023. We estimate the additional exceptional cash cost to close the US facilities to be cUS$1.0m and will be recognised in FY24. As previously argued, the re-structuring should be welcomed as after a period of declining profitability culminating in an expected Adj. loss before tax in FY24 of £1.3m, we expect Carclo to report an Adj. PBT of £1.4m in FY25. In our view, this forecast has now been substantially de-risked with the closure of the loss-making US facilities. Accordingly, as the recovery gathers pace, we re-iterate our BUY recommendation. Improving EBIT margins. The new management team, who were appointed in 2022, have now mainly finished the ‘strategic transformation’ exercise focusing on factory specialisation, process standardisation, operational excellence and financial stability. Improvements can already be seen in the operations with the EBIT margin in 1HFY24 increasing to 3.3%, up from 3.0% in the last six months of FY23 due to the focus on operational efficiency and improved asset utilisation. Also, this expansion in the margin has been achieved despite interim revenues declining 4.8% on a constant currency basis in FY24 and persistent high energy costs. EBIT margins still below peak levels. With the US restructuring complete, we expect the EBIT margin to improve to 4.7% in FY25 from a low of 0.9% in FY19. To put the recovery into context this expected EBIT margin is still some way behind the 7.4% reported in FY18. Our assumptions reveal that even a small improvement in the margin will have a material impact on the EBIT e.g. in FY25, we are expecting an EBIT margin of 4.7% and EBIT of £5.9m. However, should the EBIT margin be 6.0% it would represent an EBIT of £7.6m in FY25, i.e. a material improvement from our base case assumption. The investment case is becoming simpler. The expected improvement in margins indicates Carclo’s recovery is well underway with the self-help measures introduced by the new management team having their desired effect. Moreover, improved margins will support the cashflow and a continued decline in the net debt (pre IFRS16 leases) from £22.6m at March 2023 to an expected £17.8m by March 2026. In-turn, this leads to improved headroom against the covenants. As such, Carclo is now on a much firmer footing having spent the last 18 months focusing on operational excellence and asset utilisation and provides a good base for the share price to recover.
We resume coverage on Carclo with a BUY recommendation (previously ‘under review’) and a price target of 25p. Since May ‘21, the shares have declined by c80% and in the past twelve months the company has given cause for concern with issues ranging from the cancellation of a major contract, pension deficit financing, rising input costs, higher interest expenses and covenant arrangements. These issues are now easing with the new Board focusing on operational efficiencies which we expect to support improved revenues, margins and cash generation. We reintroduce estimates with Adj. PBT rising from an expected loss of £1.3m in FY24 to £4.0m in FY26 and for the net debt to decline from £34m at March ‘23 to £29m by March ‘26.
Following last week’s trading update from Carclo (CAR) we are withdrawing our forecasts from FY23 onwards given the significantly increased uncertainty following the loss of a major contract. We consequently also withdraw our recommendation and target price. We expect to reinstate our forecasts, recommendation and target price once there is greater visibility on the outcome of ongoing discussions with the lending bank and the Trustees of the Pension Scheme.
We sense from today’s interims that the recent changes in executive management have brought a shift in near-term focus from growth capex to higher capacity utilisation and cash generation. We believe this is a sensible pivot given the increase in interest rates but without unsettling the near-term growth and operating profit projections. More importantly, by setting a ROCE target of 15% through the cycle, which is easily double that of recent achievements, the new CEO has left no one in doubt that strengthening the equity element of the balance sheet is his top priority. As a result, whilst our PBT forecasts for FY23-24 have been downgraded as higher-than-expected interest charges have offset better-than-expected operational performance, we now expect a much-improved balance sheet at end-FY25.
Carclo’s strategy to focus on fast-growing medical and diagnostics markets continues to pay dividends. Indeed, sales growth in H1/FY23 was marginally ahead of our expectation of 10% YoY growth, despite the difficult economic backdrop and slower launch of two new product lines. However, as expected, cost headwinds experienced in H2/FY22 have continued into FY23 and, therefore, the underlying operating profit in H1/FY23 was in line with our expectation. With an experienced management team, strengthened recently by the appointment of Frank Doorenbosch as the CEO, at the helm we expect growth capex to continue to grasp the organic opportunities without impacting the stability of the balance sheet. Our TP of 44p, unchanged from our initiation note in August, is based, prudently, on moderate revenue and margin growth assumptions and no reduction in net debt and actuarial pension deficit over the FY23-25 period. We maintain our BUY rating.
Cessation of coverage We have ceased coverage of Carclo following a routine review of our coverage list. Our final recommendation was Buy, target price 45p. Henry.Carver@peelhunt.com
We believe the shares are entering the most rewarding phase in their history having emerged from arguably the riskiest period in the company’s history. The underlying businesses have strong relationships in the fast-growing medical & diagnostics sector and the recovering civil aerospace markets. With an experienced management at the helm, which took control from September 2020, we expect growth capex to continue to grasp the organic opportunities without impacting the stability of the balance sheet. Our Target Price of 44p relies, prudently, on moderate revenue and margin growth assumptions and no reduction in net debt and actuarial pension deficit over the FY23-25 period. We initiate coverage with a BUY rating.
Prelims in line; good progress despite headwinds Carclo has delivered a solid set of results for FY22 against considerable headwinds. Plans developed in 2021 are being implemented successfully and delivering new business wins that continue to build the business up for the medium and long term. Changes to our forecasts reflect several moving parts (mainly higher revenues offsetting higher costs), but the numbers are moving in the right direction (FY24E adj EBITA +5% to £8.6m). A PER of 5x FY23E does not reflect the recovering trajectory of the business; we reiterate our Buy recommendation and 65p target price. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com 4-page note
Housekeeping Following a change of analyst on the stock, we are re-publishing our forecasts with revisions to depreciation, interest and tax assumptions. Crucially, the revenue and EBITDA lines remain unchanged, confirming the direction of travel as the company starts to reap the benefits from recent capex and restructuring investments. The next anticipated news flow is a pre-close update in April ahead of FY results, likely to be in June. We retain our Buy recommendation and 65p target price. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com 3-page note
Interims ahead; further progress on all fronts Carclo has delivered a strong set of interims that reflect management’s actions over the last 12 months to stabilise the business and reposition it for growth and margin recovery. Net debt is lower, the pension deficit is lower, and strong growth in tooling orders reflects customer confidence. Well-documented external challenges remain – hence no change to next year’s numbers – but a 17% upgrade to this year is very encouraging. We move our TP to 65p (from 63p) and recommendation to Buy. Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com, Afonso.Osorio@peelhunt.com
An encouraging start to FY22E Carclo has put out an AGM trading statement, reporting an encouraging start to FY22E, and that group trading was ahead of management’s expectations for the first four months of the financial year. The group is making good progress towards its recovery, and we look forward to finding out more at the interim results in November. On our unchanged estimates, the group trades on a FY22/23E PE of 10.5/7.1x, attractive in our view Jolyon.Wellington@peelhunt.com, Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com
Heading in the right direction with strong 2H21 progress FY21 was a year of change and stabilisation for Carclo. The group has achieved its initial targets of improved 2H profits, and the balance sheet has been derisked. With this note we relaunch our coverage with fresh forecasts, a 63p valuation and an Add recommendation, which reflects our view that the upside available, should management deliver on its aims, more than offsets the downside of execution risks. At the current share price, Carclo trades on FY22E/23E PERs of 14.8x/10.0x Jolyon.Wellington@peelhunt.com, Henry.Carver@peelhunt.com, Harry.Philips@peelhunt.com 9-page note
Edison Investment Research is terminating coverage on Carclo (CAR) and Leclanché (LECN). Please note you should no longer rely on any previous research or estimates for these companies. All forecasts should now be considered redundant.
Carclo’s H120 results show that the remaining businesses following the exit from Wipac in December provide a basis for a sustainable group going forward. The continuing businesses generated £56.1m revenues and £3.3m underlying EBIT. However, there remain significant challenges in reaching agreement on long-term funding with the lending bank and pension trustee. Our estimates will remain under review until these are resolved.
Carclo has exited from its loss-making Wipac business which has been acquired by Wuhu Anrui Optoelectronics, a manufacturer of LED-based automotive lighting. This ensures continuity for both customers and employees. Carclo’s pension scheme will receive £3.5m of the net proceeds of the sale while another £5.0m will be used to reduce debt. Our estimates will remain under review until the interims in mid-January.
Carclo’s FY19 results show the deleterious impact of the issues at Wipac, which overshadowed profit growth at both the Technical Plastics (CTP) and smaller Aerospace divisions. Group revenues decreased by 1% y o y while underlying EBIT of £1.3m adjusted for exceptionals, including a price concession on exit from the mid-volume automotive business (effectively a revenue impairment), fell by £2.4m to £8.4m (unaudited). Our estimates remain under review until there is more clarity on the exit from Wipac.
Carclo has announced that while the Technical Plastics and Aerospace divisions have started FY20 well, the costs associated with ramping up an unprecedented number of new low-volume lighting programmes at Wipac remain unacceptably high. Management is therefore reviewing its decision to move into the mid-volume vehicle market. We place our FY20 estimates and valuation under review until further information is provided when the FY19 results are announced in July.
Carclo’s year-end trading update notes that Wipac’s costs remained at higher than expected levels during Q419 as the business endeavoured to address the challenges of commencing production on an unprecedented number of new programmes at the same time. As a result, we cut both our FY19 PBT and EPS estimate by 9%, while leaving our FY19 revenue estimate and FY20 estimates unchanged.
The group’s year-end trading update confirms difficult conditions have continued at its WIPAC division, which results in the group’s profitability being below the expectations set out in January. Trading at Technical Plastics and Aerospace by contrast has been fine, with YoY profit growth. Net debt is close to breaching debt covenants, but banks are supportive and providing a one-month deferral. The shares have anticipated the reduction in forecasts, trading on a P/E of 3.1x, but despite its low rating, with risks remaining, we avoid the shares for the time being.
Carclo has announced that the issues associated with initiating multiple low-volume lighting programmes in parallel that adversely affected H119 have continued throughout Q319. At the interim stage management believed that these issues would be resolved by the end of Q3, supporting a second half recovery, but now expects that second half profit levels will be similar to the first half. We revise our estimates, cutting EPS by 37% in both FY19 and FY20.
As flagged in the October trading update, Carclo’s H119 performance was adversely affected by delays in commencing three medical programmes. Moreover, all of the new vehicle production programmes planned for FY19, with their attendant start-up inefficiencies, started during the first six months. While these events held back first-half performance, they augur well for a second-half recovery. We therefore leave our estimates broadly unchanged. The reduction in our indicative valuation from144-153p to 125-133p reflects a 24% drop in the prospective P/E multiple for automotive peers since June, rather than a change in Carclo’s investment proposition.
The group has experienced a tough H1, with delayed customer programmes and production inefficiencies. Management continues to flag a much stronger H2 as the delayed programmes are now in production ramp up stage and as operating efficiencies start to flow though to improving margins. Crucially, full-year expectations are maintained, with a lower level of debt also anticipated. The shares remain lowly rated, reflecting the recent disappointing trading updates.
The group has announced its H1 trading update signalling that while H1 performance has been below expectations, it has a scheduled pick-up in production and efficiency gains that will benefit margins. As such, the Board states its full-year expectations remain unchanged. While we keep existing forecasts, we feel this announcement is unlikely to raise confidence as it adds a greater dependence on H2 forecast delivery. We reduce our PT from 133p to 90p and maintain our Hold rating.
Carclo has announced that three new medical programmes were delayed by customers during H119 and that while these programmes had all entered production successfully by the end of the period, the delays resulted in H119 underperformance for the Technical Plastics division (CTP). Although the LED division performed in line with management’s expectations and the smaller Aerospace division beat expectations, H119 trading for the group as a whole was below management’s expectations. Since management expects to correct the first half shortfall in the second half, we leave our estimates unchanged.
Delays in the placement of certain customer project awards and weaknesses in operational performance, particularly in the Technical Plastics division, meant that Carclo did not meet management’s original FY18 profit targets, although the performance was in line with revised guidance. Most of the delayed contracts have now been placed and management has taken steps to improve margins. Demand from medical customers for precision plastic moulding and for LED lighting in luxury cars, supercars and mid-volume models remains good so we leave our estimates and valuation range broadly unchanged.
Carclo has recently announced that its FY18 performance is likely to be lower than previously expected. This is because of contract delays affecting both the Technical Plastics (CTP) and LED Technologies (LED) divisions as well as a delay to the anticipated ramp-up in a non-medical project for CTP, which management expected would benefit H218. We reduce our FY18 and FY19 estimates, introduce FY20 estimates and revise our indicative valuation range from 177-187p/share to 145-154p/share.
After the Interims in November, we said that forecast risk was higher due to the c37:63 H1:H2 PBT weighting, but that management was confident of achieving this. Unfortunately, this has not proved possible and results for FY18 are now anticipated to be significantly below previous expectations. Forecast downgrades are 27% off PBT in both FY18 and FY19. Forecast net debt of £32.9m is 2.1x EBITDA and well within covenant levels (2.75x). The FD and the Chairman are to leave and Mark Rollins, highly regarded by us from his time at Senior, becomes Chairman. There are good businesses within the Group, but there is a long road of confidence rebuilding ahead. We reduce our target price to 91p (P/E of 10x FY18) and move to Hold.
As indicated in November, the FY18 out-turn was always dependent on a handful of new orders being awarded in H2. Unfortunately news came this morning that these have now been deferred (but importantly not lost) by the associated customers (2 at Technical Plastics and 3 at Wipac), along with the non-ramp up of volumes at a major non-medical TP client. As a result, FY18 PBT will be “significantly” below previous expectations. Additionally, given these programs would have contributed towards next year’s numbers, the company has also prudently reduced FY19 guidance - albeit still representing “healthy YoY growth”.
As flagged at the AGM in September, performance at Carclo’s Technical Plastics division (CTP) was held back by key new programmes slipping from H118 to H218 as well as some operational issues, which have been largely resolved. This was balanced by outperformance in the LED Technologies division (LED), where the level of design, development and tooling activity was ahead of expectations. Management anticipates that full year trading will be in line with expectations, so we leave our estimates broadly unchanged.
Successful investing is all about detail. Take the UK’s latest new car registration figures, which were down -4.6% Oct’17 YTD according to the Society of Motor Manufacturers and Traders (SMMT). Clearly the big boys – namely the large OEMs (eg Ford), suppliers (GKN) and dealers (Pendragon) - are having a difficult time, buffeted by more cautious buyers and environmental concerns over diesel engines (-14.9%).
Carclo is focusing investment on its two larger established businesses – Technical Plastics (CTP) and LED Technologies (LED). Here a differentiated offer and long-term relationships with customers provide good earnings visibility and higher probability of a sustainable return. This strategy delivered strong revenue and profits growth during FY17. Despite a temporary setback at CTP during H118, which was balanced by outperformance at LED, growth appears set to continue, underpinned by contracts with blue-chip customers.
One of Carclo’s many attractions is its broad spread of activities, spanning multiple geographies, technologies and vertical markets. When one division stumbles another picks up the baton. And so it has proved today, with the group saying this morning that it is “on track” to hit FY18 numbers, despite experiencing some H1 “challenges” in Technical Plastics (Re: program delays and operational difficulties) on top of temporary weakness in Aerospace demand.
Carclo (CAR): AGM statement in line, but greater H2 weighting (HOLD) | Shield Therapeutics (STX): Iron tired of being tired all the time (BUY) | Water Intelligence* (WATR): Building market presence (BUY) | Chariot Oil & Gas* (CHAR): Rig assigned for Rabat Deep drilling (CORP) | Frontier Developments* (FDEV): A stellar year, and it’s just the beginning (CORP) | Atalaya Mining (ATYM): Interim results (BUY) | SCISYS* (SSY): FY 2017 in line with guidance so far (CORP)
CAR STX WATR CHAR FDEV ATYM SSY
You don’t have to be a ‘Silicon Valley’ tech startup to deliver double-digit top line growth. Carclo – an innovative designer and manufacturer (70% non-UK sales) of complex plastic parts, cables and premium LEDs (see below) to the healthcare and engineering sectors - has been doing exactly this for years.
Carclo has refocused investment in its established businesses (Technical Plastics and LED Technologies), where a differentiated offer and long-term relationships with customers provide good earnings visibility and higher probability of a sustainable return. This strategy delivered strong revenue and profits growth during FY17. This growth appears set to continue, underpinned by contracts with blue-chip customers. We increase our estimates of revenues attributable to Technical Plastics while slightly reducing PBT and EPS to reflect higher IAS 19 finance charges. We raise our indicative valuation to 181-191p (previously 153-162p).
Amino Technologies (AMO LN) Another strong period | Carclo (CAR LN) Positive trading; improvement in pension and reserves | FreeAgent (FREE LN) Debut prelims strong; executing growth strategy | Gooch & Housego (GHH LN) Good H1 growth with strong prospects | IDOX (IDOX LN) Solid H1; focused strategy driving execution | Oxford Metrics (OMG LN) Benefits of new strategy beginning to show | Vp (VP/ LN) Strong momentum drives FY18 upgrades | WYG (WYG LN) Positive cashflow surprise, FY18 guidance reiterated
CAR VP/ AFRN GHH IDOX OMG WYG
Both of Carclo’s larger divisions, Technical Plastics (TP) and LED Technologies, grew in line with management expectations during FY17, while the smaller Aerospace division continues to experience stable trading conditions. FY18 has started well with the announcement of a second mid-volume project for Wipac. This new award underscores the relevance of the recent FLTC acquisition, which substantially enhances Wipac’s ability to progress multiple projects simultaneously. We leave our estimates unchanged but slightly increase our indicative sum of the parts valuation.
Carclo has announced that H217 trading remains strong and the outlook for the full year is in line with its expectations. Growth is being driven by the two larger divisions, Technical Plastics (TP) and LED Technologies, while the Aerospace division is experiencing stable trading conditions. We leave our estimates unchanged, but note potential currency upside should foreign exchange rates remain at current levels for the remainder of FY17.
Carclo has refocused investment in its established businesses (Technical Plastics and LED Technologies), where a differentiated offer and long-term relationships with customers provide good earnings visibility and more certainty of a return. This strategy delivered strong revenue and profits growth during H117. This growth appears set to continue, underpinned by long-term relationships with blue-chip customers. We leave our estimates and indicative valuation broadly unchanged and introduce our estimates for FY19.
On 14 October Carclo acquired US-based Precision Tool & Die (PTD) for an initial consideration of $5.5m (c £4.5m). The acquisition has been funded through a placing raising £7.7m (net) at 120p/share. H117 trading was in line with management expectations. We revise our estimates accordingly and derive an indicative valuation of 144-152p/share.
The group has announced an acquisition of a US-based precision tooling and injection moulding business, selling into the medical device sector, for $6.5m, accompanied by the announced proposed placing to raise £8.0m. We think the acquisition looks a decent fit and provides good customer and geographic extension to existing operations. The net effect of the acquisition and placing is broadly EPS neutral. The shares trade on a P/E of 11.3x followed by 10.0x. We maintain our Hold rating.
The two divisions driving growth – Technical Plastics and LED Technologies – are both performing well and in line with management expectations, so we leave our earnings estimates unchanged. However, low corporate bond rates have resulted in a significant increase in the pension deficit, meaning that management may not be able to use the profit growth to fund Carclo’s progressive dividend policy. As the dividend suspension does not reflect any issues with profits growth, we reiterate our earnings estimates, which look for 15% adjusted PBT growth in FY17.
The FY16 results showed that the core businesses of Technical Plastics and LED Technologies are continuing to grow revenues and expand margins. Management talks with enthusiasm about driving Technical Plastics into exciting new production technologies, and in LED Technologies the win of a medium volume sports car programme could lead to a significant increase in revenues and profits in the medium term. However, in our view, the relative earnings multiples still do not fully reflect the quality and potential of these businesses.
Carclo is a precision engineering business that has been refocussed towards its three core businesses. Two of these, Technical Plastics and LED Technologies are growing fast. The third Aerospace is a solid earner and gradually transitioning away from the control cable business as that system is being phased out by aircraft manufacturers.
Final results were in line with expectations and the recent trading update. The closure of CDS, announced in May, is disappointing, but pragmatic, and ensures that further costs are avoided. Within the core divisions, we continue to view Wipac’s loss of the VW programme as a one-off and continue to see strong growth potential from both Technical Plastics and LED Technologies. Indeed, the announcement today of a WIpac win in the medium volume sector is good news and we will monitor progress closely in this area. We increase our price target to 176p (P/E of 14x FY18 EPS) and remain at Buy.
Carclo (CAR LN) Core divisions remain strong | Goals Soccer Centres (GOAL LN) Time to take a serious look | Gooch & Housego (GHH LN) H1 decline as expected, FY guidance unchanged | Herald Investment Trust (HRI LN) Good long term performance | IDOX (IDOX LN) Strong interims and confident outlook | iomart Group (IOM LN) Solid progression with 9% organic growth in Cloud | Minds + Machines Group (MMX LN) .vip significant momentum continues | UDG Healthcare (UDG LN) Growing share in a growth market | Vp (VP/ LN) A strong conclusion to a very busy year | WYG (WYG LN) FY16 results in line, momentum building
CAR GOAL GHH HRI IDOX IOM MMX UDG VP/ WYG
It is clearly disappointing that CDS is not to progress to commercialisation and that £4.9m of investment will be written off. However, management has taken the difficult decision to exit CDS in order to avoid prolonged further cost for an uncertain benefit. This does not markedly change the investment case in our view; we await results on 7th June but expect the core divisions to be performing strongly and remain at Buy.
Brady (BRY LN) Q1 in line but traditionally busy Q2 will determine progress | Carclo (CAR LN) Exit from CDS; Focus on core divisions | Speedy Hire (SDY LN) Anticipating reassuring numbers tomorrow | Victrex (VCT LN) Highly reassuring interims
CAR SDY VCT BRC
As was the case in February, this is another reassuring update which confirms a stronger H2 and also confirms that Carclo is not exposed to the weaker areas of general industrial activity/oil & gas. As we have said previously, CIT is now history and the two main divisions have strong growth opportunities; we retain our target price of 156p and Buy recommendation
Carclo (CAR LN) Trading in line | Castle Street (CSI LN) Change of name to CORETX (ticker changed to COR LN) | City of London Investment Group (CLIG LN) FuM +3% driven by investment performance, marginal inflows | EKF Diagnostics (EKF LN) Renewed focus should drive value | Ergomed (ERGO LN) Full year results: clinical data expected in 2016 | Oxford Instruments (OXIG LN) Year end trading update in line; New CEO announced | Quantum Pharma (QP LN) A ray of sunshine
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A reassuring update which confirms a stronger H2 and also confirms that Carclo is not exposed to the weaker macro areas at present. As we said in November, CIT is now history and the two main divisions are ripe with opportunity; coupled with little exposure to general industrial activity/oil & gas, this is a strong investment case. We retain our target price of 156p and Buy recommendation.
Rude Health: Analyst interview | Carclo: Analyst interview (BUY) | Omega Diagnostics*: Interims (CORP) | Acal: Continuing to move up the value chain (BUY) | Aureus Mining: US$21.5m fundraising completed (BUY)
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Carclo is delivering significant earnings growth, having rejuvenated and refocused since its exit from CIT earlier this year. The recent delay on a new VW model programme is a set-back, but doesn’t undermine the investment case. Management has repositioned and invested in growth opportunities, and over the next few years profits should see the fruits of this investment. The shares offer a strong investment case, on an attractive value with substantial EPS growth forecast for the next three years, and we initiate coverage with a 170p price target and Buy recommendation.
Carclo: New capacity, new customer programmes (BUY) | 7digital*: South American expansion and contract win (CORP)
Carclo plc 7Digital Group PLC
Carclo's H1 results showed the underlying strength of its core business and the analyst presentation was confident in tone. The loss of the VW Phaeton programme is a frustrating bump on the road, but LED Technologies remains firmly on track with strong revenue growth and the significant win of a new manufacturer. Technical Plastics is performing well, with the new Chinese facilities due to start manufacturing in January 2016. These are quality businesses with strong long-term stories, but Carclo’s earnings multiples relative to established small-cap growth stories with similar dynamics have yet to fully reflect this.
We moved to Buy from Hold earlier this week, following weakness in the share price. Having digested the results presentation and considered the Group’s growth prospects in more detail, we have increased our target price to 156p (from 135p) equating to c.14x FY17 EPS. CIT is now history and the two main divisions are ripe with opportunity; coupled with little exposure to general industrial activity/oil & gas, this is a strong investment case. Buy.
No surprises in the results following the pre-close in October. We view the loss of the VW programme as a one-off and continue to see strong growth potential from both Technical Plastics and LED Technologies. The shares have been weak in recent weeks and we move to Buy from Hold with a maintained target price of 135p.
news that VW is delaying its flagship Phaeton vehicle, which will now be launched as an all-electric vehicle. The short-term impact on our forecasts is not immaterial but the share price reaction appears overdone. In our initiation note we identified Carclo’s earnings multiples discount against its UK comparators with established growth stories. We think the extent of the discount is unjustified and see the long-term story remaining firmly intact, but accept that, although the delay is not of Carclo’s making, it may now take a bit longer to close the gap.
Carclo appears to have been the unfortunate victim of VW’s need to clean up its act, with a flagship luxury vehicle now expected to be redesigned as an electric vehicle and the consequent delay thereby affecting Wipac’s performance this year and next. This means that we are downgrading FY16 PBT by 8% from £9.5m to £8.8m and FY17 by 10% from £11.2m to £10.2m. This impact from one programme is disappointing, but the underlying trends for the Technical Plastics and LED Technologies divisions remain positive. We reduce our SOTP target price from 148p to 135p and remain at Hold.
Carclo (CAR LN) VW impact; forecast downgrades | NCC Group (NCC LN) Strong start to the year | Zytronic (ZYT LN) Materially ahead of expectations
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Trading is in line with expectations. LED Technologies is slightly ahead but recent weakness in Precision Engineering has offset this positive impact. We await updates later in the year on progress with the new Chinese facility and development of the new programmes in LED Technologies. We retain forecasts and remain at Hold with a 148p target price.
Carclo (CAR LN) Trading in line | Greene King (GNK LN) Upcoming Q1 update unlikely to be a positive ST catalyst | Horizon Discovery Group (HZD LN) Collaboration with Redx Pharma | Lookers (LOOK LN) Benfield acquisition for £87.5m – 12.5% upgrades in 1st full year (FY’16) | Redde (REDD LN) Upgrading PBT, strong growth drives dividend | Summit Therapeutics (SUMM LN) Dr Ralf Rosskamp appointed Chief Medical Officer
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Carclo is no longer a corporate stock therefore we initiate a recommendation of Hold today (from Corporate). Our target price is sum of the parts driven and is initiated at 148p.
Momentum continues to be strong in the 2 main divisions despite currency headwinds. The spectre of CIT is now behind the Group and focus can be fully on Technical Plastics and LED Technologies with the added potential of Carclo Diagnostic Solutions (CDS). Within CDS, resources will now concentrate on the infectious disease and cardiac care tests where chances of commercialisation are more compelling. Discontinuation of the blood coagulation test leads to a £2.8m intangible impairment. On a P/E of 14.7x FY16 (EV/EBITDA 8.8x) the Group does not look expensive given the growth possibilities in coming years.
Carclo (CAR LN) Momentum continuing; CDS refocused | Creston (CRE LN) Prelims inline, dividend +8%, trading well | Gooch & Housego (GHH LN) Strong growth for H1 15 & good prospects | Grainger (GRI LN) Realise and redeploy to enhance returns | iomart Group (IOM LN) Solid delivery; organic performance + acquisition = upgrades | John Menzies (MNZS LN) e-commerce logistics acquisition | OMG (OMG LN) Solid first half and further cash return | Oxford Instruments (OXIG LN) FY15 results in line, some concerns regarding prospects
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